Apple Q3 Themes: Rumors, Economy, & ‘Product Transition’

By Bryan Chaffin

Jul 24th, 2012 9:00 PM EDT

Apple reported its June quarter results on Tuesday—turning in a rare miss—and a couple of main themes emerged from the company’s conference call with analysts. The first is that the miss can be pegged on those evil rumors of an iPhone 5 and a lagging economy, while the second was a focus by both the analysts and Apple executives on the code phrase “product transition.”

Rumors

This is the second time that Apple CFO Peter Oppenheimer sounded petulant when complaining that rumors of a new iPhone this fall had a negative effect on sales of the device this quarter. I’ll be honest and say that it’s ridiculous. Of course sales of Apple’s iPhone 4S slowed down—it’s a wonder anyone buys a new iPhone in the 3-4 months leading up to a refresh.

“Our weekly iPhone sales continue to be impacted [sic] by rumors and speculation regarding new products,” Mr. Oppenheimer said. He later added, “Regarding the iPhone, we’re reading the same rumors and speculation that you are about a new iPhone and we think this has caused some pause in customers purchasing. The timing of availability of Intel’s ivy bridge and resulting rumors about the new portables impacted our sales in April and May.”

This is an effect that goes hand in hand with the great anticipation for Apple’s devices, something touched on later in the call by CEO Tim Cook. Mr. Cook said that Apple is focused on secrecy, but that in a free country (the U.S.), people are free to speculate and that he isn’t going to waste energy trying to get people to stop speculating.

He added that he is glad that people want Apple’s products so much that they want to engage in this kind of speculation, and he should be. Clearly Apple’s secrecy has been a major component to the frenzy that builds ahead of a new Apple product launch, and it’s time for the company to stop lamenting the effect this has in the weeks leading up to those launches.

Not even Apple gets to have its cake and eat it, too.

Economy

Apple also pointed to the economy as an issue affecting the June quarter’s sales. Specifically, Peter Oppenheimer noted that, “We do think some things did impact us in the quarter, so let me comment on that. The economy in Europe is not doing well. We think this impacted our results. We also saw some economic impact in the natural resource based economies including Australia, Brazil and Canada.”

Earlier in the call, Tim Cook said, “France and Greece and Italy were particularly poor and Germany was also only a single digit positive growth for the quarter. Eastern Europe was strong, materially stronger than Western Europe, but obviously the Western European countries drive the preponderance of the revenue in that segment. And so we are certainly seeing a slowdown in business in that area.”

At the same time, he added, “Fortunately, the US and China, although I realize it’s getting a lot of press, we’re not seeing anything there that we would classify as on obvious economic issue.”

It may seem obvious that economic turmoil around the planet would have a negative effect on Apple’s sales, but this is one of those areas where context is king: Apple has generally seemed immune to the economy’s woes for the last several years.

This marks the first time I can remember when Apple has emphasized the role the economy played in its results, and some analysts are already commenting that the company is proving to be less resistant to these external economic issues.

That played a role in Apple’s after hours decline, and will play a role in what is likely to be a smaller regular-session decline on Wednesday.

“Product Transition”

This was a boring conference call, truth be told. Perhaps because of that, there was something that sort of stood out, and that was a sort of dance that spontaneously erupted around a fall “product transition.”

As longtime Apple observers know, Apple doesn’t talk about future products, but in this call, Katy Huberty of Morgan Stanley asked about Apple guiding gross margins down dramatically in the September quarter. Apple CFO Peter Oppenheimer responded that, ” We expect most of this decline to be primarily driven by a fall transition.”

Wait, what’s that you said? A transition? That’s right, Mr. Oppenheimer was telling the analysts in a very easy-to-understand code that Apple was guiding lower because of the transition to the iPhone 5 this fall. The same product whose rumors caused him to complain during the call.

Anyway, this phrase was quickly seized upon by several other analysts who all wanted to know more about this transition, turning Mr. Oppenheimer’s comment into “product transition.”

What was so entertaining about it is that it elicited a laugh from Tim Cook as they all danced around this phrase. It’s true that Apple didn’t really offer any information about the iPhone 5 “transition,” but Mr. Oppenheimer did come right out and say:

Okay. Ben, I don’t want to frustrate you or others but the fall transition that I spoke about is driving most of the decline that we see sequentially in gross margin. It’s not something that we’re going to talk about in any level of detail today. And we could not be more confident in our new product pipeline.

Another example is when Shannon Cross of Cross Research asked, “How are your discussions with the carriers going clearly into the product transition that’s coming?”

Tim Cook responded, “Let me avoid talking about the product transition. But you’re very smart to ask that. I don’t want to get into specific topics about with different carriers but generally I would just say that our role is to make the very best smartphone in the world and that has an incredible user experience, far superior than anything else that customers want to use every day.”

This is a far cry from Apple’s usual line of, “We don’t discuss unannounced products.”

Toni Socconaghi

I am so tired of this guy. For years, Mr. Socconaghi has called on Apple to follow in the footsteps of its competitors. You gotta release a cheap netbook because netbooks are the bomb. You gotta release a cheap smartphone because consumers want cheap smartphones. You gotta release a cheap iPad because everyone else is releasing a cheap iPad.

All the while, Apple continues turning in incredible quarter after quarter. Even this quarter’s rare miss was still a record June quarter, with record iPad sales and record June quarter Mac sales.

In any event, Mr. Socconaghi has been saying this stuff for years, and this conference call was no exception. Citing data that 70% of smartphones being sold in China are cheap (total price of $200-$300), he asked Tim Cook what Apple was going to do about that since Apple doesn’t have a cheap smartphone.

I feel like I should point Mr. Socconaghi to Einstein’s definition of insanity—doing the same thing over and over again and expecting difference results—but I don’t think it would do any good. He doesn’t understand Apple’s business model or value proposition, and he is the most clueless of all the major analysts who cover Apple. Why he gets any air time during Apple’s conference calls is beyond me.

For the record, Mr. Cook’s response was that Apple was going to “stick to its knitting,” and stay focused on making the best products it can.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.